How have credit rating agencies reacted to the controversy? What is the latest rating for Credit Suisses and Archegos (if applicable) senior unsecured debt? What are the latest rat
risk management project
3. Credit Rating Agency: (20/100)
How have credit rating agencies reacted to the controversy?
What is the latest rating for Credit Suisses and Archegos (if applicable) senior unsecured debt?
What are the latest rating outlooks and what can lead to further downgrade?
How would you apply S&Ps Fundamental Probability of Default / Management and
Governance Credit Factors (Probability of Default and Scoring Models: Similarities and
Differences | S&P Global Market Intelligence (spglobal.com)) to assess Credit Suisse in May
2021? Explain your rationale for the assessment.
Requirements: 2 pages
External Stakeholder Requirements Group Assignment #1: Credit Suisse – Archegos Analysis Overview Here is how the meltdown unfolded and the aftermath in 2021 between several banks and Archegos Capital Management: WEDNESDAY, MARCH 24 The catalyst for Wall Street banks to start liquidating Hwangs positions was a March 24 stock sale by media company ViacomCBS, to which Archegos was heavily exposed, two sources said. ViacomCBSs stock had fallen 9% on Tuesday as the company marketed the offerings and by Wednesday, after it priced, the stock was down 30% from Mondays high. The slide set off alarm bells at Archegos banks, which called on the fund for more collateral to cover the increased exposure on the equity derivatives – also known as swaps – Archegos had bought on ViacomCBS and other stocks. But it did not have enough liquidity to meet the call, the sources said. THURSDAY, MARCH 25 In a bid to stave off a default, Hwang arranged a conference call with the banks on Thursday to ask them to agree to hold off on selling the shares that underpinned his swap trades in the hopes they would bounce back, those sources said. Some of the banks, including Credit Suisse, favored holding off, but Goldman Sachs and others were keen to start selling shares to free up cash so Archegos could pay them what was owed, those sources said. FRIDAY, MARCH 26 On Friday before the market opened, Goldman Sachs came to an agreement with Archegos to sell a block of $3 billion to $4 billion worth of the securities that backed Hwangs positions, according to one of the sources. Over the course of the day, Goldman sold more than $10.5 billion of shares in ViacomCBS, Baidu Inc and Tencent Music Entertainment Group, among others. Morgan Stanley offloaded $8 billion worth of shares. Deutsche Bank sold $4 billion of shares related to the Archegos swaps in a private deal on Friday, a source familiar with the transaction said. All told, Archegos banks sold millions of stocks the companies had bet on, dragging down the media sector and others.
That left Credit Suisse and Nomura sprinting for the exit before it slammed shut, but by the time they decided to start selling, the stocks had fallen too far to avert major losses. By market close on Friday, shares of ViacomCBS had fallen 27% and were down more than 50% for the week. MONDAY, MARCH 29 Nomura Holdings Inc flagged a possible $2 billion loss, while Credit Suisse disclosed a material impact,? with sources putting the losses at $1 billion to $4 billion. Others appeared to escape unscathed. Goldman and Morgan Stanley averted a material financial impact, sources familiar with the trades said. Deutsche Bank said it had significantly de-risked its Archegos exposure without incurring any losses. TUESDAY, MARCH 30 Japans Mitsubishi UFJ Financial Group reported it was on the hook for potentially $300 million, while JPMorgan analysts estimated that Wall Streets total losses could reach $10 billion. Regulators in the United States and United Kingdom said they were discussing the meltdown with market players. WEDNESDAY, MARCH 31 Losses began piling up for Credit Suisse, with sources estimating its total bill could be $5 billion. U.S. Treasury Secretary Janet Yellen announced that she would revive a regulatory working group to study risks that hedge funds pose to the financial system. THURSDAY, APRIL 1 Other banks with exposure continued to emerge. Japanese financial firm Mizuho Financial Group Inc said it may face a loss of 10 billion yen ($90 million) from deals with Archegos, the Nikkei newspaper reported. Assignment You are a high-profile enterprise risk management (ERM) consultant. You have been retained by a US law firm to analyze the developments of the Credit Suisses capital losses due to Archegos controversy. You were asked to review Credit Suisse 2020 and 2021 annual reports, quarterly presentations, supplemented by quarterly earnings, rating agency reports and equity analyst reports. You were asked to prepare a report to help the investor understand the development of the Archegos controversy, what role ERM has played in managing the situation, actions taken by the different management teams to address the issues, and the key risks outstanding for investing in Archegos Capital Management.
Additional References: 1. Credit Suisse, Earning Release / Earnings Presentation / Earning Transcript Quarterly Results for 2020 and 2021, Annual reports ? Credit Suisse (credit-suisse.com); https://www.credit-suisse.com/media/assets/corporate/docs/about-us/investor-relations/financial-disclosures/financial-reports/csg-ar21-parent-company-financial-statements-bank-en.pdf; Press Release 2020 ? Credit Suisse (credit-suisse.com) and 2021 ? Credit Suisse (credit-suisse.com) 2. Credit Suisse, SEC Filings (SC 13G, DRS, SC 13G/A, 6-K ..etc.), SEC filings ? Credit Suisse (credit-suisse.com) 3. https://www.cnbctv18.com/market/stocks/explained-archegos-margin-call-bill-hwang-credit-suisse-goldman-sachs-nomura-8757301.htm/amp 4. https://marketfeed.com/read/en/the-collapse-of-archegos-capital-explained 5. https://www.justice.gov/opa/pr/four-charged-connection-multibillion-dollar-collapse-archegos-capital-management Your report should address: 1. Review Credit Suisse 2020 and 2021 Annual Reports and other financial materials (25/100) Would an investor in early 2020 identify the potential risks from this presentation? Now looking at back mirror?, are there any parts of the 2020 Annual Report and other financial materials raising concerns? Describe the difference between the 2020 Annual Report versus the 2021 Annual Report Describe the actions taken by Credit Suisse to address issues raised by the reserve change to rebuild trust with the investor community. 2. Credit Suisse, Press Release and Statements in January 2021, (20/100) Why did Credit Suisse choose to hold the Press Release Statements? What actions has the company highlighted to address the issues? What additional actions should management take? Had management implemented the changes in managing the inherent risks identified? Do you think the accounting controversy could have been avoided? 3. Credit Rating Agency: (20/100) How have credit rating agencies reacted to the controversy? What is the latest rating for Credit Suisses and Archegos (if applicable) senior unsecured debt? What are the latest rating outlooks and what can lead to further downgrade? How would you apply S&Ps Fundamental Probability of Default / Management and Governance Credit Factors (Probability of Default and Scoring Models: Similarities and Differences | S&P Global Market Intelligence (spglobal.com)) to assess Credit Suisse in May 2021? Explain your rationale for the assessment.
4. How has Credit Suisse stock performed compared to the overall U.S. stock market? What are the key risks facing Credit Suisse? (15/100) Quantify the stocks performance against the broader market and its sector since December 30, 2021. Discuss your view of the key risks facing Credit Suisse going forward and why. Would you recommend investing in Credit Suisse stock? Why or why not? 5. How has the 2nd and 3rd Line of Defenses operated effectively and efficiently for Credit Suisse? (10/100) What are some of the conflicts of interests across the internal departments? What are some of the inherent risks that contributed to the downfall of Credit Suisse? There will be a PowerPoint presentation in class. (10/100) Grading Your work will be evaluated based on the quality of the: Research and Analysis: You demonstrated a high-level understanding of the development of this accounting controversy, the Financial Presentations, the Press Release and Statement and other relevant public disclosures. You reconciled the different expectations and actions from external stakeholders including credit rating agencies and investors. Writing: Your report was prepared as a narrative with logical flow, rather than as a checklist. Your findings were expressed with clear and concise organization, and proper spelling and grammar. Class Presentation: Your presentation was well prepared, logical and focused, with clear verbal articulation of major points. You demonstrated time management skills. Detailed Instructions All report submissions must use MLA style and Word document format. No more than 10 pages on the length of the report. Please cite all research references at the end of the document. The written report and PowerPoint presentation slides are both due at 6:00 PM on Feb 7, 2023. All group members names and the group name should appear in header or footer of each page. The presentation should be no longer than 8 minutes and focus on the key topics you would discuss with your client. Format no more than 10 pages report (including citation), PPT group presentation only 8 minutes, and PPT slides no more than 10 slides. Due date Feb for both PPT and Report before class starts in Session 5.
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